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December 2016

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The Government's decision to relax mandatory 30 per cent local sourcing norms has come as a shot in the arm for global brands in India, according to media reports.

The decision earlier this month allows mass brands including Swedish home furnishing major Ikea to comply with such sourcing norms from the day their first store opens rather than from when the first tranche of investment is made.

Ahead of the Government's announcement, Ikea which has committed for Rs 12,500 crore investment in India, had sought relaxation for five years over mandatory 30 per cent local sourcing norms from opening of its first store in India.

In a statement, Ikea had said it needs some time "to build a sustainable and long term sourcing solutions" to source raw material, find local entrepreneurs and to create industrial set ups.
The Government's announcement also included allowing foreign single-brand entities to sell products through online channels provided they have permission to sell through brick-and-mortar stores.

The relaxation in foreign direct investment norms will cheer companies including tech major Apple, which was earlier expected to source 30 per cent of its products locally.

"It is seen that in certain high technology segments, it is not possible for retail entity to comply with the sourcing norms. To provide opportunity to such single brand entities, it has been decided that in case of `state-of-art' and `cutting-edge technology,' sourcing norms can be relaxed subject to government approval," according to an official notification.

Ikea has welcomed the decision saying the time to comply with the 30 per cent local sourcing norm from store opening will support brands in building long term sustainable supply chains that are good for India, good for the businesses and will enable better prices to the Indian customers.

The policy changes will pave the way for single-brand retailers such as Swedish clothing company H&M to tap India's growing e-commerce business.

"FDI policy on the SBRT (single brand retail trading) provides that retail trading, in any form, by means of e-commerce, would not be permissible. It has been decided that an entity which has been granted permission to undertake SBRT will be permitted to undertake e-commerce activities," the latest policy paper said.

Proposals of companies including Tommy Hilfiger and Furla were stuck with the Department of Industrial Policy & Promotion for years because they had planned to set up their own stores and sell products through franchisees, which wasn't allowed. Now, such companies can engage in both wholesale trading - which is needed for sales through franchisees - and retail trading as long as it follows the norms for both segments.

Indian manufacturers with foreign investment that are controlled by Indians can now sell their products through online channels provided they make 70 per cent of the output and source the remainder from local companies. (SH)